[Federal Register Volume 88, Number 44 (Tuesday, March 7, 2023)]
[Notices]
[Pages 14220-14221]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-04626]


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SECURITIES AND EXCHANGE COMMISSION

[SEC File No. 270-259, OMB Control No. 3235-0269]


Proposed Collection; Comment Request; Extension: Rule 17f-5

Upon Written Request, Copies Available From: Securities and Exchange 
Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 
20549-2736

    Notice is hereby given that, pursuant to the Paperwork Reduction 
Act of 1995 (44 U.S.C. 350l-3520), the Securities and Exchange 
Commission (``Commission'') is soliciting comments on the collection of 
information summarized below. The Commission plans to submit the 
existing collection of information to the Office of Management and 
Budget for extension and approval.
    Rule 17f-5 (17 CFR 270.17f-5) under the Investment Company Act of 
1940 [15 U.S.C. 80a] (the ``Act'') governs the custody of the assets of 
registered management investment companies (``funds'') with custodians 
outside the United States. Under rule 17f-5, a fund or its foreign 
custody manager (as delegated by the fund's board) may maintain the 
fund's foreign assets in the care of an eligible fund custodian under 
certain conditions. If the fund's board delegates to a foreign custody 
manager authority to place foreign assets, the fund's board must find 
that it is reasonable to rely on each delegate the board selects to act 
as the fund's foreign custody manager. The delegate must agree to 
provide written reports that notify the board when the fund's assets 
are placed with a foreign custodian and when any material change occurs 
in the fund's custody arrangements. The delegate must agree to exercise 
reasonable care, prudence, and diligence, or to adhere to a higher 
standard of care, in performing the delegated services. When the 
foreign custody manager selects an eligible foreign custodian, it must 
determine that the fund's assets will be subject to reasonable care if 
maintained with that custodian, and that the written contract that 
governs each custody arrangement will provide reasonable care for fund 
assets. The contract must contain certain specified provisions or 
others that provide at least equivalent care. The foreign custody 
manager must establish a system to monitor the performance of the 
contract and the appropriateness of continuing to maintain assets with 
the eligible foreign custodian.
    The collection of information requirements in rule 17f-5 are 
intended to provide protection for fund assets maintained with a 
foreign bank custodian whose use is not authorized by statutory 
provisions that govern fund custody arrangements,\1\ and that is not 
subject to regulation and examination by U.S. regulators. The 
requirement that the fund board determine that it is reasonable to rely 
on each delegate is intended to ensure that the board carefully 
considers each delegate's qualifications to perform its 
responsibilities. The requirement that the delegate provide written 
reports to the board is intended to ensure that the delegate notifies 
the board of important developments concerning custody arrangements so 
that the board may exercise effective oversight. The requirement that 
the delegate agree to exercise reasonable care is intended to provide 
assurances to the fund that the delegate will properly perform its 
duties.
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    \1\ See section 17(f) of the Act. 15 U.S.C. 80a-17(f).
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    The requirements that the foreign custody manager determine that 
fund assets will be subject to reasonable care with the eligible 
foreign custodian and under the custody contract, and that each 
contract contain specified provisions or equivalent provisions, are 
intended to ensure that the delegate has evaluated the level of care 
provided by the custodian, that it weighs the adequacy of contractual 
provisions, and that fund assets are protected by minimal contractual 
safeguards. The requirement that the foreign custody manager establish 
a monitoring system is intended to ensure that the manager periodically 
reviews each custody arrangement and takes appropriate action if 
developing custody risks may threaten fund assets.\2\
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    \2\ The staff believes that subcustodian monitoring does not 
involve ``collection of information'' within the meaning of the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (``Paperwork 
Reduction Act'').
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    Commission staff estimates that each year, approximately 62 
registrants \3\ could be required to make an average of one response 
per registrant under rule 17f-5. A ``response'' may involve the fund's 
directors making certain findings concerning foreign custody managers, 
and the review and ratification of custodial contracts. Commission 
staff estimates a response relating to these matters will require 
approximately 2.5 hours of board of director time per response, to make 
the necessary findings concerning foreign custody managers, and 1 hour 
of related compliance attorney time per response, to assist the fund 
board.\4\ For registrants, the total annual burden associated with 
these requirements of the rule is up to approximately 217 hours (62 
responses x 3.5 hours per response).
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    \3\ This figure is an estimate of the number of new management 
investment company registrants each year, based on data reported on 
Form N-CEN as of December 2019, 2020, and 2021. Commission staff 
anticipates that the number of existing registrants that change 
their foreign custody managers is negligible and, therefore, the 
compliance burden of rule 17f-5 falls primarily on new registrants. 
In practice, not all registrants will use foreign custody managers. 
The actual figure therefore may be smaller.
    \4\ As discussed below, Commission staff estimate that a 
response from a registrant will also include a related burden for 
the applicable foreign custody manager chosen by the registrant's 
board of directors.
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    Foreign custody managers are also affected by the collection of 
information requirements under rule 17f-5. Commission staff estimate 
that, in connection with each registrant's board of directors making 
certain findings concerning a foreign custody manager, those findings 
will require approximately 20 hours of trust administrator time from 
the applicable manager. This burden relates to the foreign custody 
manager's initial considerations regarding custodial arrangements with 
the registrant and preparing reports to the fund board.\5\ Commission 
staff further estimate that annually, approximately 15 foreign custody 
managers will be required to make an average of 4 responses per manager 
concerning the use of foreign custodians other than depositories.\6\ 
This ``response'' may involve the foreign custody manager establishing 
bank custody arrangements, negotiating/renegotiating custodial 
contracts, preparing reports to fund boards, and

[[Page 14221]]

establishing and/or amending the foreign custody manager's system for 
monitoring custody arrangements for its clients. The staff estimates 
that each response will take approximately 250 hours of trust 
administrator time, requiring approximately 1,000 total hours annually 
per foreign custody manager (4 responses per foreign custody manager x 
250 hours per response). Thus, the total annual burden for foreign 
custody managers associated with the requirements of the rule is 
approximately 16,240 hours ((62 responses by foreign custody managers x 
20 hours per response) + (15 foreign custody managers x 4 responses per 
manager) x 250 hours per response).
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    \5\ This estimate does not include burden hours related to the 
establishment and/or amendment of the foreign custody manager's 
system for monitoring custody arrangements for its clients, which is 
accounted for separately as discussed below.
    \6\ This figure is based on the staff's estimate of the number 
of global custodians that may act as foreign custody managers under 
rule 17f-5.
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    Therefore, the total annual burden of all collection of information 
requirements of rule 17f-5 is estimated to be up to 16,457 hours (217 
hours + 16,240 hours). The total monetized annual cost of burden hours 
is estimated to be $5,166,833 ((217 hours x $3,529/hour blended wage 
rate) + (16,240 hours x $271/hour for a trust administrator's 
time)).\7\ Compliance with the collection of information requirements 
of the rule is necessary to obtain the benefit of relying on the rule's 
permission for funds to maintain their assets with foreign custodians.
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    \7\ The rates used to create the blended rate are as follow: 
board of director time -$4,770 and compliance attorney time -$425. 
Staff estimates concerning wage rates for the cost of board of 
director time are based on fund industry representations. Based on 
fund industry representations, the staff estimated in 2014 that the 
average cost of board of director time, for the board as a whole, 
was $4,000 per hour. Adjusting for inflation, the staff estimates 
that the current average cost of board of director time is 
approximately $4,770 per hour. Estimates concerning wage rates for 
compliance attorneys and trust administrators are based on salary 
information for the securities industry compiled by the Securities 
Industry and Financial Markets Association and modified by 
Commission staff for 2023. The compliance attorney and trust 
administrator wage figures are based on published rates for each, 
modified to account for a 1800-hour work-year and inflation, and 
multiplied by 5.35 to account for bonuses, firm size, employee 
benefits and overhead. See Securities Industry and Financial Markets 
Association, Report on Management & Professional Earnings in the 
Securities Industry 2013.
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    The estimate of average burden hours is made solely for the 
purposes of the Paperwork Reduction Act. The estimate is not derived 
from a comprehensive or representative survey or study of the costs of 
Commission rules and forms.
    Written comments are invited on: (a) whether the proposed 
collection of information is necessary for the proper performance of 
the functions of the Commission, including whether the information 
shall have practical utility; (b) the accuracy of the Commission's 
estimate of the burden of the collection of information; (c) ways to 
enhance the quality, utility, and clarity of the information collected; 
and (d) ways to minimize the burden of the collection of information on 
respondents, including through the use of automated collection 
techniques or other forms of information technology. Consideration will 
be given to comments and suggestions submitted by May 8, 2023.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information under the PRA unless it 
displays a currently valid OMB control number.
    Please direct your written comments to: David Bottom, Acting 
Director/Chief Information Officer, Securities and Exchange Commission, 
c/o John Pezzullo, 100 F Street NE, Washington, DC 20549 or send an 
email to: [email protected].

    Dated: March 2, 2023.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-04626 Filed 3-6-23; 8:45 am]
BILLING CODE 8011-01-P